Precious metal miners: fathoming the abyss

Designed to outperform

Remembering what miners resisted best the downturn during the 4 year bear market, I'm evaluating the current composition of two large cap mining ETF's. The blog Designed to outperform pinpoints where the downward risk is lower... and no, I didn't receive a penny for writing this ;-)

Question for Gwyde

I liked your article and agree with what you said : "As miner sentiment turned sour again, it is most likely that miners which made stellar gains during the start of the rejuvenated gold bull market are exactly those which once more will be suffering quite hefty losses during this downturn."

However, I have noticed over the years than when miners are in a bull market as they are now, that the traders tend to sell off the best performers and buy the laggards as they have much more room to run up back to fair value than the stronger companies that did not drop as much. This does not work in a flat or bear market as the stronger stocks mostly outperform. Do you think this is a good time to buy the laggards? Or stay with the winners?

P.S. In this latest correction, I have 4 stocks that are exceptions to your general rule that the big winners will drop the most. Out of @30 miners, SVMLF, SLW, AKG, and GORO have massively outperformed in this correction. From the recent highs to today,noontime, they are only down @8%.

Re: Question for Gwyde

Traders buy what they expect to have the largest short term potential and may need to cash in on winners in the process.

There will inevitably be exceptions to the general rule that the big winners are at risk of dropping more. One also needs to ask why:

SLW is a "low risk" silver streamer. It does react on the silver price but much less on the financial performance of the miners it has a silver off-take agreement with. It has been down a lot because the silver price has been awfully low. General base and precious metal weakness also caused operational risks for miners. Those may entail credit risks for a streamer like SLW. There still is long term potential.

SVM has been bashed awfully and after it was banned to the from regular American market to the 'pink sheets' it dropped far beneath its fair value. Another silver miner which had a very hard time with silver below $15. Too early to quit: there still is potential for further recovery.

AKG is one of the picks in our list. It has been moving towards production during the gold mining bear. A happy coincidence that its production is ramping up while gold is in an uptrend. Operational profits will come sooner than anticipated. High potential, why sell?

Currently, I don't follow GORO. I've owned a small stake five years ago and sold at a tiny loss. Seeing GORO implode from over $20 (when I sold) to barely over $1 made me reluctant to get on board again. Can't give a recommendation that makes sense.

Orchestrated slide

After broad stock markets slid previous Friday, during the past week advances alternated with declines. Yet on balance American indices ended with a tiny (DJ, S&P) to more reassuring (Nasdaq Comp.) gain mainly due to Apple (and Intel) rallying.

Precious metals were the victim of the rate hike fear: not as much the improbable September hike by the FED but rather the global discomfort with zero or negative long term bond rates. In such environment, pension funds depending on interest payments cannot meet obligations and are cranking up the risk in their bond portfolio. Life insurance companies also feel the pinch and are replacing bonds by alternative assets procuring stable revenues, such as real estate. Higher long term bond rates however are a bitter medicine since they reduce the present value of the principal: a two sided sword for insurers and pension funds. Moreover, after all QE, central banks are among the largest holders of sovereign debt, which makes their balance sheet particularly vulnerable to the devastating effect of rising long term rates. There is no graceful way out.

Governments are about the only initial beneficiary while this treadmill is running. Yet the tax base is gradually eroding as corporate profits in the financial sector are under pressure and savers see their income dwindle.

Back to precious metals: gold is down 1.34% over the week, closing at $1310 (barely above the end Aug level). Silver lost 1.42% to $18.76. Platinum slid 4.06% to $1016. Palladium was on a similar trajectory but suddenly reverted course on Friday, thereby cutting its loss to a mere 0.15% (closing at $672).

Not the most fruitful environment for precious metal miners: yet the HUI is down less than 2% with HUI/Gold upholding 0.172. You find updated graphs on the gold miner pulse blog page. Losses for the benchmark ETF's are comparable: GDX and GDXJ are down 1.7% and 1.2% respectively, only SIL slid 3.5%.

Since a few weeks I had Integra Gold in the 'benchmark' section. I've moved it over to the selection as of today. It quotes just above break-even and is only marginally diluting the average result. Last week we had 6 miners advancing against 12 declines with Miranda Gold flat over the week. Double digit declines for Mirasol Resources and Sandstorm Gold are the major drag on the aggregated list result.

On the Gold Miner Pulse list (used for calculating the indices) AM Gold has been removed after selling its main exploration target, the Pinaya Copper-Gold project in Peru, to Kaizen Discovery. AM Gold was one of the absolute dogs of the list, down over 99% since Nov 2010. It was replaced by Endeavour Mining (EDV) which is quoting at a moderate long term loss. Here, you find the individual miner performance. You find EDV in the second quintile.

Rally unraveling

Last week we witnessed a gradual improvement of the precious market sentiment, leading towards the Wednesday rally, both for metals and miners. Especially silver made a quantum leap. The end of the week was less glorious with profit taking, despite the yellow metal upholding well.

On balance gold was up 2.1% to $1337.1, while silver gained 4.9% (despite giving back some towards Friday) and closing at $19.68. The PGM's made some nice recovery gains, after (especially platinum) had incurred a substantial decline the weeks before. Pt was up 3.74% to $1054.

This brings the long term gain to 9.65%. (Cap weighed, we even add 24.35%., but including liquidations, we are still down about that much). There is no change to the long term advance/decline balance: 11 to 8. Integra Gold books a modest gain and quotes more solidly in the green. Over the week we have 15 gains against only 3 losses, with Eurasian Min flat over the week. Ivanhoe Mines, Oceana Gold, Osisko and Pretium Gold rallied double digits while Miranda Gold and Sandstorm Gold lag with a 6% - 7% decline.

A new mining stock acronym

Well I'm sure you've all heard of trendy acronym F.A.N.G. for Facebook, Amazon, Netflix and Google. So I thought I'd develop one for the precious metal miners. Heres my hot picks... F.irst Majestic, U.S. Precious metals, C.ontinental Gold corp, K.inross Gold corp, Y.amana gold, O.ceanagold Corp, U.nigold so if anyone asks you what you are invested in now you can tell them my acronym!

The seasonal lie

After alternating advances and declines, American stock market indices close the week with fractional gains. Not much to brag about, yet better than what precious metals went through.

The succession of gold declines in September indeed turns the 'seasonal rally' into a seasonal lie. The past week, the yellow metal only upheld on Monday, entailing a gradual price erosion bringing us to $1316.2, down 1.56%. Silver wasn't any better with a 2.79% decline to $19.13. On multiple occasions, silver plunged beneath $19 intraday. The PGM's were a mixed bag, with platinum extending its slide to 2.66% (closing at $1026) but Palladium confirming its 'outlier' reputation advancing 2.86% over the week to $719.

The HUI index retreated by 1.7% (thanks to a counter-trend advance on Wednesday). This leaves HUI/Gold almost unchanged at 0.175. The usual updates have been done on the gold miner pulse blog page. The 'Miner performance page' (another button on the blog title bar) also has been refreshed, with some long term stats and a comparison to previous evaluation on Sept 16.

On account of USD weakness, Canadian quotes are off more than their USD denominated counterparts. Our GMP list based indices decline between 2.43% (gold miners index) and 4.09% (silver miners index), with the 'equal weight index' holding the middle ground. Our Contributor driven Explorer and Junior Miner Spreadsheet didn't have a good week: down 4.84%. The long term advance is dwindling to 4.35%. Long term advances/declines are 10/9. Among long term advances, we've lost BTG, which after a 9.3% weekly slide is down 1.5%. The major drag on the list however is Oceana Gold, down over 15% last week. At the up-side there only is Ivanhoe to save the honor.

You may have noticed that the Global-X gold explorer ETF changed its quote to GOEX; with a 4.1% weekly slide, GOEX joins us laggards.

Golden Arrow resources

Hey Joe, where you going with silver deposit in your hand?
I'm goin' down to Silver Standard cause I caught them messin' around with not enough silver in their plan.
Huh! that ain't kool.
Hey Joe, I heard you drilled your deposit down, you drilled her down, down into the ground.
Yeah, I drilled her cause
you know I caught silver standard messin' around and
messin' around with no plan
I'll give them the option, Alright!
I'll drill it one time baby, Yeah, Dig it!
Hey Joe, where you gonna run if they don't bite
I said where you gonna run where you gonna go?
I'm goin' way down south
Way down to Argentina way, Alright!
Way down south because a deposit ain't free
Ain't no bear market gonna find me
No bears gonna put a rope around me
You better believe it right now!
Hey Joe, silver better run on, it better run on and how!
Hey, hey Joe.....

Deeper and down

Adequately describing the current state of precious metal markets only requires recalling the Status Quo classic: Deeper and down. Listen here if U like. Gold lost 4.45% over the week, closing at $1257.6, up fractionally from the Thursday bottom. Silver shed 8.36% to $17.53. The heavily battered Platinum slid another 5.85%, quoting back into single digits at $966 and Palladium eventually couldn't continue resisting gravity either, plunging 7.1% to $668. Last week's posting title: "the seasonal lie" unfortunately was most accurate.

Major bloodshed among miners is the expected consequence. The HUI plunged 13.79% to 199.3 (doubling is a past event), whereby the HUI/Gold ratio slid to 0.159. The usual updates have been done on the gold miner pulse blog page.

The damage among the ETF's is comparable, with declines ranging between 12% and 14%. Our Contributor driven Explorer and Junior Miner Spreadsheet was off less (9.5%), with some of the picks finding some shelter in the avalanche: over the week all picks are down but declines vary from 0.9% for Ivanhoe Mines to 23% for Miranda Gold.

Nevertheless the aggregate performance slid back into the red: we now are down 5.6%. Over the long haul we have 8 picks holding on to an advance, while 11 are in the red. We lost Sandstorm Gold and Osisko Royalties among the long term gains.

Precious metal demand halting price erosion?

American stock markets closed with a timid uptick on Friday. That can't undo the broad decline earlier in the week. The S&P gave back about 1.5% over the week, while Nasdaq eased less than 1%.

Will precious metal demand soon be halting price erosion? Gold seemed to have left behind its bottom on Thursday, but the slide before the WE decided otherwise. The yellow metal gave back 0.56% over the week, closing at $1250.5. Silver was down 0.86% over the week, closing at $17.38. For the PGM's the slide continued unabated with platinum down 3.42% for the week, ever deeper into the triple digits at $933. Down over $240 since peaking early August, the platinum slump aggravates with the gold to platinum ratio (now 1.34) near its Jan-16 peak. With a weekly 3.44% slide, palladium is equaling Pt on its race to the bottom.

Miners are upholding relatively well also suggesting that investors tend to believe the worst is behind us. The HUI is flat (+0.1%) over the week, making HUI/Gold uphold 0.159. The usual updates have been done on the gold miner pulse blog page.

Benchmark ETF's are scattered among tiny declines and timid advances. With a 0.41% gain, our Contributor driven Explorer and Junior Miner spreadsheet is leading the squad. Over the week advances (10) balance declines (9). The major drag again is Miranda Gold (-10%) while Timmin's gold (+12.7%) and B2Gold (=11.3%) are leading.

Long term advances (7) don't make up for long term declines (11) while Integra gold slid back to its break-even level. The long term decline still stands at 5.2%.

A timid recovery

American stock markets moved sideways last week, with the DJI virtually unchanged and fractional weekly gains for S&P and Nasdaq.

Without any guiding news, gold started creeping higher last week. On balance the yellow metal added 1.22% to $1265.7. Less enthusiasm for the white metals, with silver lagging with a 0.69% net advance to $17.50. The PGM's even continued weakening with Platinum declining fractionally (-0.21%) to $931/Oz. As a result the Au/Pt ratio equals its 1.35 peak value posted in January. Palladium slid 3.57% over the week to $622/Oz, confirming once more its outlier reputation.

Miners were picking up steam, with the HUI index getting traction till Wednesday but easing towards the WE. On balance the HUI advances by 8.2% to 216. As a result HUI/Gold firms to 0.17, leaving behind its latest trough. The usual updates have been done on the gold miner pulse blog page.

Over the week advances (17) dominate. The only minor drag being Almaden Min (-2.6%) with Ivanhoe mines flat. Several double digit advances are what make the difference. Especially MAG Silver (+17.5%) is leading advances and making the difference. BTG and Sandstorm Gold made it to a long term advance once more. This is bringing us to a favorable 10 long term gains against 8 long term declines, with Osisko Gold Royalties flat. They paid a small dividend though.

Investors turning their back

American stock markets went through a lackluster last week of October. The DJI managed to break even (+0.1%), but both S&P (-0.7%) and Nasdaq (-1.3%) retreated over the week.

Precious metals have been alternating declines and advances. However gold added 0.7% on balance closing at $1274.7/Oz on Friday. There was more enthusiasm for silver (+1.31%) to $17.73 and the heavily beaten up Platinum (+4.94%) to $977. As usual Palladium went against the grid, easing 0.48% to $619.

Investors however are turning their back on miners, with the HUI down 4.31% over the week to 207. It won't come as a surprise that the HUI/Gold ratio slid to 0.162. The usual updates have been done on the gold miner pulse blog page. Secondly the HUI is once again beneath its regression line relative to gold, as residuals turned negative after a brief excursion above market neutral miner pricing.

There also is a fresh update on the Miners' performance page. Mines Management Inc. has been acquired by Hecla Silver and left the selection. It was replaced by Mirasol Resources, a prospect generator. There also have been a few name and/or ticker changes. So it's worth taking a look at the text & table section at the bottom.

Benchmark ETF's are sliding without exception. With a 5.9% decline, our Contributor driven Explorer and Junior Miner spreadsheet is near the rear end. Giving up break-even, we end up with a 3.12% aggregate loss. There only were two picks advancing over the week with another break-even against 16 declines. Quite a few double digit declines (Platinum Group Metals, Ivanhoe Miners, Pilot Gold) were the proverbial straw breaking the camel's back.
Sandstorm Gold and Integra Gold gave up their long term advance. This brings us to a less favorable 9 advances against 10 declines.

Only half convincing

American stock markets have been retreating prior to the upcoming election. The S&P is down close to 2% for the week while Nasdaq eased 2.8%. European stock markets were dragged along in a losing streak.

Precious metals have been firming, with gold up 2.3% for the week and regaining $1300. On Friday gold closed at $1304. Even some more enthusiasm for silver, gaining 3.84% over the week to $18.41. The PGMs lag with a 1.94% weekly gain for Pt (unable to hold on to a $1000/Oz intraday high) closing at $996 and Pd adding less than 1% to $625. Precious metal gains are only half convincing due to the greenback weakening.

The HUI index added 5% last week, making the HUI/Gold ratio firm little to 0.167. The usual updates have been done on the gold miner pulse blog page. Despite the HUI advancing, it stays beneath its regression line relative to gold: residuals remain negative.

All benchmark ETF's advance, but only GDX (+5.29%) beats the HUI, while GDXJ almost catches up. SIL lags and GOEX adds less than 2% over the week. With a 2.61% advance, our Contributor driven Explorer and Junior Miner spreadsheet is not among the best in class. Yet with most quotes in CAD this comes at no surprise. We cut our long term loss to a fractional 0.59%. There are 12 picks advancing over the week against 7 declining. Sandstorm gold made it above break-even, bringing us to 10 long term advances against 9 long term declines. Weekly advances were led by Continental Gold (+12%) but (nano-cap) prospect generator Miranda Gold (-11%) is the major drag on the list.

You notice that our cap weighed result (+14.9%) dwarfs the overall average: nice long term gains on the few mid-caps on the list, such as BTG, MAG silver and Pretium Res boost the cap weighed result. On the other hand, the poor performance on micro-caps such as Argonaut Gold, Pilot Gold and Timmin's Gold weighs more on the blunt average performance.

Premeditated collapse

Opinion polls on the US presidential election were equally wrong as the UK polls on the Brexit. The people equally voted against the establishment, favoring the populist Trump, a loudmouth play ground bully since his early years, the like of Nigel Farage. Yet probably all resemblance stops there.

The impact of president elect Trump on American society may be just as pronounced as the Brexit in the UK, the response of financial markets turned out quite different and again went against the mainstream forecasts. Fear and uncertainty made Asian markets slide, whereas the loss in Europe stayed contained and US markets eventually ended higher upon the election result. US stock markets continued rallying ending the election week up about 3.8% (S&P and Nasdaq); the DJI even surged 5.36% over the week.

A mirror like image for precious metals, with gold making an intra-day high above $1300 upon initial indications favoring a Trump election victory, with enthusiasm waning over the day and gold ending virtually flat on Wednesday: the start of an exasperating plunge. The yellow metal ends the week at $1227.6/Oz, down 5.86% over the week. The white precious metals initially resisted better. Yet the silver plunge on Friday was even more breathtaking. Silver ends the week down 5.65% at $17.37/Oz. Platinum slid 5.42% to $942, while Palladium went against the grid as usual, firming 7.36% over the week to $671, despite its Friday retreat.

It is obvious that speculators made a U turn from 'risk-off' being long gold to 'risk-on' being long the stock market and 'short gold'. The long to short speculative position swing on Comex gold futures exceeds the annual global mine production.

The carnage among miners is predictable: the HUI plunged 17.11% over the week, tumbling to 180.2. The HUI/Gold ratio thereby slid to 0.147, the lowest level in over 6 months, as you notice in the first graph on the gold miner pulse blog page. Nevertheless the HUI almost perfectly followed its regression line: residuals remain mildly negative. There is no indication of 'capitulation'.

Among our benchmark ETF's, losses are comparable to that of the HUI: ranging 16.2%-17.7%. Only SIL was off a little less (-14.9%). Poor comfort that with a 14.55% decline, our Contributor driven Explorer and Junior Miner spreadsheet is the best in class. Two miners advance against the trend, yet among declines we face quite a few double digit slides, as could be anticipated. Sandstorm Gold, Osisko Royalties, Osisko Gold and B2Gold gave up their long term advance, which brings us to an unfavorable 6 advances against 13 declines since list inclusion. The long term decline now posts 15.06%.

Recovery smothered

The post-electoral optimism on American stock market seems having run its course. Over the week, market indices nevertheless hold on to modest gains.

Precious metals once more are a different story. We enjoyed a brief recovery till Tuesday, which however was smothered during the following days. On balance gold is down 1.65% to $1207.4. Silver sheds 4.72% to $16.55. The PGM's keep bifurcating with Platinum easing another 2.1% to $922 and Palladium going against the trend as usual, firming 7.75% over the week to $723, after posting a 12 m high earlier this week. The stronger greenback offsets lower precious metal prices, which supported miners. The HUI adds a modest 1.06% over the week, making HUI/Gold firm a little to 0.151, as you notice in the first graph on the gold miner pulse blog page.

Our benchmark are a mixed bag, with timid advances for GDX (+0.6%) and GDXJ (+0.8%) and declines for GOEX (-2.46%) and SIL (-1.37%). With a 1.25% advance, our Contributor driven Explorer and Junior Miner spreadsheet is the best in class. Over the week we have 13 picks advancing against 6 declining. Yet since inclusion on the list, the proportions are exactly opposite. The blunt average long term loss stands at 14%, yet the weighed result post just above break-even.

Happy thanksgiving

Over this short trading week, American stock markets are almost flat. The usual victims of Thanksgiving are turkeys and precious metals. While there can be no exception to the former, I don't really recall any Thanksgiving week with precious metals rising; perhaps it's worth a statistical study.

(...)

I notice the old adage is still valid. With the starting levels different, the percentage loss of the gold price is larger than it was last year. By now gold is back down to the level reached during the second week of February, that was the third week after the onset of the gold recovery. It also is the peak level of the last failed recovery attempt (in Oct 2015) which didn't make it to $1200/oz.

What gold recovery?

Stock markets continue advancing, with the S&P and DJI setting new all time highs. The USD is firming at the same time, while long term interest rates are creeping higher. Bond markets have a hard time.

Meanwhile there 's little left of what has been the 2016 gold recovery. Gold slid below $1200 closing at $1181 on Friday at noon, a weekly loss of 2.7%. Silver closed at $16.46, with a limited weekly loss of 0.54%. PGM's continue bifurcating, with Platinum sliding over 2% to $903 and Palladium advancing 2.6% to a fresh 12 m closing high ($742).

The HUI posts a 3.48% loss making HUI/Gold weaken to 0.149. The usual update of the gold miner pulse blog page tells you more. Among our benchmark ETF's declines vary between 1.21% for SIL to 2.1% for GDXJ. With a 1.02% decline, our Contributor driven Explorer and Junior Miner spreadsheet is best off. Over the week we have 7 picks advancing against 12 declining. With many quotes in CAD, there is some Forex tail wind to our list performance.

Over the long haul declines still lead advances 13 to 6, while the average long term loss posts at 14.9%. The cap weighed return is almost flat (+0.18%).

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